In the name of Allah The Beneficent The Merciful. Corporate Information 03. Directors Review 04. Auditors Review Report 09

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1 In the name of Allah The Beneficent The Merciful C O N T E N T S Corporate Information 03 s Review 04 Auditors Review Report 09 Unconsolidated Condensed Interim Statement of Financial Position 10 Unconsolidated Condensed Interim Profit and Loss Account 11 Unconsolidated Condensed Interim Statement of Comprehensive Income 12 Unconsolidated Condensed Interim Cash Flow Statement 13 Unconsolidated Condensed Interim Statement of Changes in Equity 14 Notes to and Forming Part of the Unconsolidated Condensed Interim Financial Information 15 Consolidated Condensed Interim Statement of Financial Position 33 Consolidated Condensed Interim Profit and Loss Account 34 Consolidated Condensed Interim Statement of Comprehensive Income 35 Consolidated Condensed Interim Cash Flow Statement 36 Consolidated Condensed Interim Statement of Changes in Equity 37 Notes to and Forming Part of the Consolidated Condensed Interim Financial Information 38 01

2 C O R P O R A T E I N F O R M A T I O N Board of s Shariah Supervisory Board Audit Committee Risk Management Committee Human Resource & Remuneration Committee Resident Shariah Board Member Company Secretary Auditors Riyadh S. A. A. Edrees Faisal A. A. A. AlNassar Bader H. A. M. A. AlRabiah Mansur Khan Alaa A. AlSarawi Syeda Azra Mujtaba Muhammad Zarrug Rajab Mohammad Abdul Aleem Noorur Rahman Abid Talal S. A. AlShehab Irfan Siddiqui Ariful Islam Justice (Retd.) Muhammad Taqi Usmani Sheikh Essam M. Ishaq Dr. Muhammad Imran Ashraf Usmani Mohammad Abdul Aleem Noorur Rahman Abid Alaa A. AlSarawi Muhammad Zarrug Rajab Faisal A. A. A. AlNassar Syeda Azra Mujtaba Ariful Islam Riyadh S. A. A. Edrees Noorur Rahman Abid Irfan Siddiqui Dr. Muhammad Imran Ashraf Usmani Tasnimul Haq Farooqui A. F. Ferguson & Co. Chairman Vice Chairman President & CEO Deputy CEO & Executive Chairman Registered Office and Head Office Website Shares Registrar Meezan House C25, Estate Avenue, SITE, Karachi 75730, Pakistan Phone: (9221) , Fax: (9221) /7 Call Centre: & info@meezanbank.com THK Associates (Pvt) Ltd State Life Building 3 Dr. Ziauddin Ahmed Road Karachi 75530, Pakistan Phone: (9221) , Fax: (9221)

3 D I R E C T O R S R E V I E W The Board of s is pleased to present the condensed interim unaudited financial statements of Meezan Bank Limited and consolidated financial statements for the half year ended. The financial highlights of Meezan Bank are given below: Financial Highlights Rupees in million Statement of Financial Position December 31, Growth % Investments/Placements under Bai Muajjal Sovereign 200, ,431 1% Investments/Placements under Bai Muajjal Others 67,636 48,953 38% Islamic financing and related assets net 225, ,569 9% Total Assets 571, ,850 7% Deposits 500, ,821 6% Shareholders' Equity 26,989 25,557 6% Rupees in million Profit & Loss Account Jan June Jan June Growth % Discount rate 6.5% 6.25% 8.5% 6.5% Net spread earned after provisions 9,101 9,118 0% Non funded income 2,807 2,185 28% Operating income 11,909 11,304 5% Administrative and other expenses (7,475) (6,468) 16% Profit before tax 4,433 4,836 (8%) Profit after tax 2,686 2,677 0% Earnings per share Rupees % Number of branches % By the Grace of Allah, Meezan Bank has maintained its growth momentum and crossed the deposits milestone of Rs 500 billion. The total assets of the Bank increased to Rs 571 billion from Rs 532 billion as of December 31,, a growth of Rs 39 billion. The Bank maintained its position as the leading Islamic bank in Pakistan (amongst both Islamic as well as conventional banks) with branch network of 551 branches in 143 cities. The Bank recorded profit after tax of Rs 2,686 million as compared to Rs 2,677 million in the corresponding period last year. You will be happy to note that operating income grew by 5% (YoY) on account of high quality portfolio of earning assets notwithstanding the fact that return on assets has decreased due to lowering of discount rate which ranged between 6.5% to 6.25% in the current period as compared to 8.5% to 6.5% in the corresponding period last year. However there was substantial growth in our fee, commission and brokerage income which increased by 40% with major contribution from trade finance income and income from alternative distribution channels. 04

4 D I R E C T O R S R E V I E W The Finance Act has extended the applicability of Super Tax imposed in at the rate of 4% on the taxable income of the Bank for. This has resulted in additional tax charge, for prior year, of Rs 276 million which has impacted the profitability of the Bank. On liability side, deposits have increased by 6% as compared to December while CASA improved to 75% of the total deposits as compared to a CASA of 71% in December. Despite the intense competition in the industry, the Bank not only expanded its deposit base but also successfully realigned its deposit mix and achieved a lower cost of funds. This low cost of funds has supported the Bank s operating performance during the half year. There have been two new issues of the Sovereign Ijarah Sukuks but unfortunately the issue size was small as compared to the demand for such instrument which led to a price war and the cutoff price was lower than the equivalent instrument available for the conventional banks. This has negatively impacted the Islamic banking industry. The bank was able to deploy Rs 55 billion in these sukuks at a cut off yield of 5.59%. Islamic financings and related assets grew by remarkable 56% from June and 9% from December closing at Rs 225 billion. During the half year, the Bank increased its financings as it brings better return with simultaneously ensuring all the risk parameters are met. The financings growth rate of banking industry was 7% during the half year while the Bank s financings grew by 9% and it also increased its share of financings in the banking industry. ADR of the Bank improved from 44% in December to 45% in June. The Bank maintains comfortable level of provisions against its nonperforming financings with coverage ratio at 118%. The focus remains to build a high quality and diversified financing portfolio.the trade business volume handled by the Bank grew by 20% to Rs 241 billion as against Rs 201 billion in the corresponding period of last year. Administrative and operating expenses increased to Rs 7,385 million from Rs 6,382 million. The rise in expenses is primarily due to increase in staff expenses, rent and associated costs as a result of addition of 123 new branches during last year an investment which has reaped fruits for the Bank, as is evident from the strong growth in deposits and profits over the years. The Bank is in the process of issuing Tier II Sukuks of Rs 7 billion to support our future growth strategy and meet Basel III requirements. The Sukuk issue is expected to be completed before the end of the third quarter which will improve the Bank s capital adequacy ratio. The Board has approved 17.5% (Rs 1.75 per share) interim cash dividend for. The Bank has maintained unbroken payout record since the Bank s listing on Stock Exchange in the year The JCRVIS Credit Rating Company Limited, an affiliate of Japan Credit Rating Agency, Japan has reaffirmed Bank s longterm entity rating at AA (Double A) and short term rating at A1+ (A One Plus) with stable outlook. The short term rating of A1+ (A One Plus) is the highest standard in short term rating. The rating indicates sound performance indicators of the Bank. 05

5 D I R E C T O R S R E V I E W Islamic Banking is growing at a rapid pace in Pakistan and we are thankful to the State Bank of Pakistan and the Ministry of Finance for the support given in developing the Islamic Banking industry. One of the issues being faced by the industry is the shortage of Sukuks available to Islamic Banks to deploy surplus liquidity. We are hopeful that with the efforts of the Ministry of Finance and SBP s Islamic Banking Department, there will be new Sukuk issues during the year. The Board would like to express its sincere thanks and gratitude to the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan and our Shariah Supervisory Board for their continued guidance and support. We also take this opportunity to thank our valued customers for their patronage, the shareholders for their continued support and to the staff for their continuous efforts to make Meezan Bank a success. May Allah Almighty give us the strength and wisdom to further expand our vision of making Islamic banking as banking of first choice. On behalf of the Board Riyadh S.A.A. Edrees Chairman Irfan Siddiqui President & CEO Karachi: August 23, 06

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8 AUDITORS REPORT ON REVIEW OF UNCONSOLIDATED CONDENSED INTERIM FINANCIAL INFORMATION TO THE MEMBERS Introduction We have reviewed the accompanying unconsolidated condensed interim statement of financial position of Meezan Bank Limited as at and the related unconsolidated condensed interim profit and loss account, unconsolidated condensed interim statement of comprehensive income, unconsolidated condensed interim cash flow statement, unconsolidated condensed interim statement of changes in equity and notes to the unconsolidated condensed interim financial information for the half year then ended (hereinafter referred to as the unconsolidated condensed interim financial information ). Management is responsible for the preparation and presentation of this unconsolidated condensed interim financial information in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Our responsibility is to express a conclusion on this unconsolidated condensed interim financial information based on our review. The figures of the unconsolidated condensed interim profit and loss account and unconsolidated condensed interim statement of comprehensive income for the quarters ended and have not been reviewed, as we are required to review only the cumulative figures for the half year ended. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying unconsolidated condensed interim financial information as at and for the half year ended is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. A. F. FERGUSON & CO. Chartered Accountants Engagement Partner: Salman Hussain Dated: August 25, Karachi 09

9 UNCONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION AS AT JUNE 30, Note December 31, (Audited) ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments net Islamic financing and related assets net Operating fixed assets Deferred tax asset net Other assets ,288,226 15,698,346 72,498, ,227, ,262,295 8,846,817 9,608, ,430,669 43,685,636 11,175, ,079, ,304, ,568,823 8,056,743 13,979, ,849,934 LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Subordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities net Other liabilities 14 10,532,096 20,141, ,983, ,509 11,204, ,493,169 6,560,324 13,609, ,820, ,121 13,118, ,502,824 NET ASSETS 27,937,500 26,347,110 REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of investments net of tax 15 10,027,379 9,124,489 7,837,122 26,988, ,510 27,937,500 10,027,379 8,587,363 6,942,042 25,556, ,326 26,347,110 CONTINGENCIES AND COMMITMENTS 16 The annexed notes 1 to 27 form an integral part of this unconsolidated condensed interim financial information. Riyadh S. A. A. Edrees Chairman Irfan Siddiqui President & Chief Executive Faisal A. A. A. AlNassar Muhammad Zarrug Rajab 10

10 UNCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED) FOR THE HALF YEAR ENDED JUNE 30, Note Quarter ended Half year ended Quarter ended Half year ended Profit / return earned on Islamic financing and related assets, investments and placements Return on deposits and other dues expensed Net spread earned ,487,045 2,926,668 4,560,377 14,953,820 6,151,845 8,801,975 9,018,723 3,751,002 5,267,721 17,296,012 7,781,632 9,514,380 (Reversal of provision) / provision against nonperforming Islamic financing and related assets net Reversal of provision against offbalance sheet obligations (Reversal of provision) / provision against diminution in the value of investments Bad debts written off directly Net spread after provisions (90,669) (50,110) (140,779) 4,701,156 (222,920) (76,576) (299,496) 9,101,471 83,081 (4,813) (7,499) 70,769 5,196, ,827 (4,897) 92, ,218 9,118,162 OTHER INCOME Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Capital gain on sale of investments net Unrealised loss on revaluation of investments classified as held for trading Other income Total other income 680, , , ,221 46,433 1,474,523 6,175,679 1,307, , , , ,517 2,807,154 11,908, ,214 54, ,422 31,135 48,493 1,029,667 6,226, ,573 96, , ,394 82,696 2,185,442 11,303,604 OTHER EXPENSES Administrative expenses Other charges Other reversals Workers Welfare Fund Total other expenses Extraordinary / unusual items PROFIT BEFORE TAXATION 3,753, (868) 47,817 3,800,512 2,375,167 2,375,167 7,385, (101) 89,602 7,475,215 4,433,410 4,433,410 3,338, (16,419) 57,839 3,380,466 2,846,153 2,846,153 6,381, (11,530) 97,018 6,467,527 4,836,077 4,836,077 Taxation Current Prior years Deferred PROFIT AFTER TAXATION , ,280 (40,860) 1,026,234 1,348,933 1,419, , ,212 1,747,782 2,685,628 1,019, ,143 3,784 1,482,243 1,363,910 1,352, , ,258 2,158,727 2,677,350 Rupees Basic and diluted earnings per share The annexed notes 1 to 27 form an integral part of this unconsolidated condensed interim financial information. Riyadh S. A. A. Edrees Chairman Irfan Siddiqui President & Chief Executive Faisal A. A. A. AlNassar Muhammad Zarrug Rajab 11

11 UNCONSOLIDATED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE HALF YEAR ENDED JUNE 30, Quarter ended Half year ended Quarter ended Half year ended Profit after taxation for the period 1,348,933 2,685,628 1,363,910 2,677,350 Other Comprehensive income Comprehensive income transferred to statement of changes in equity 1,348,933 2,685,628 1,363,910 2,677,350 Items that may be reclassified to profit and loss account Components of comprehensive income not reflected in equity Surplus on revaluation of investments 589, , , ,194 Deferred tax on revaluation of investments (206,293) (85,176) (177,317) (153,069) Total comprehensive income for the period 1,732,049 2,843,812 1,624,152 2,819,475 The annexed notes 1 to 27 form an integral part of this unconsolidated condensed interim financial information. Riyadh S. A. A. Edrees Chairman Irfan Siddiqui President & Chief Executive Faisal A. A. A. AlNassar Muhammad Zarrug Rajab 12

12 UNCONSOLIDATED CONDENSED INTERIM CA SH FLO W STAT E ME N T ( U NAUDITED) FOR THE HALF YEAR ENDED JUNE 30, CASH FLOWS FROM OPERATING ACTIVITIES Note Profit before taxation Less: Dividend income Adjustments for noncash charges and other items Depreciation Amortization (Reversal of provision) / provision against nonperforming Islamic financing and related assets net (Reversal of provision) / provision against diminution in value of investments Reversal of provision against off balance sheet obligations Gain on sale of operating fixed assets (Increase) / decrease in operating assets Due from financial institutions Islamic financing and related assets Other assets Increase / (decrease) in operating liabilities Bills payable Due to financial institutions Deposits and other accounts Other liabilities Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Net investment in securities Dividends received Investments in operating fixed assets Proceeds from disposal of operating fixed assets Net cash (used in) / generated from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Dividend paid Net cash used in financing activities Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period 4,433,410 (279,600) 4,153, ,385 80,151 (222,920) (76,576) (29,429) 408,611 4,562,421 28,580,629 (17,470,552) 4,504,511 15,614,588 3,971,772 6,531,849 29,162,325 (2,293,125) 37,372,821 57,549,830 (1,216,112) 56,333,718 (48,602,996) 146,079 (1,547,759) 49,578 (49,955,098) (1,252,744) (1,252,744) 5,125,876 54,860,696 4,836,077 (96,654) 4,739, ,259 72, ,827 92,288 (4,897) (29,810) 892,379 5,631,802 (82,771,541) 30,934,874 4,097,847 (47,738,820) 2,751,809 (6,896,708) 54,104,994 (3,503,535) 46,456,560 4,349,542 (1,161,894) 3,187,648 11,379,347 73,614 (1,451,078) 49,281 10,051,164 (1,252,123) (1,252,123) 11,986,689 35,229,841 Cash and cash equivalents at the end of the period 21 59,986,572 47,216,530 The annexed notes 1 to 27 form an integral part of this unconsolidated condensed interim financial information. Riyadh S. A. A. Edrees Chairman Irfan Siddiqui President & Chief Executive Faisal A. A. A. AlNassar Muhammad Zarrug Rajab 13

13 UNCONSOLIDATED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY ( UN AU DI TE D) FOR THE HALF YEAR ENDED JUNE 30, Share capital Capital reserves Statutory reserve * Non Distributable Capital Reserve Revenue reserve General reserve Unappropriated profit Total Balance as at January 1, 10,027,379 4,398,548 2,823,440 66,766 5,958,587 23,274,720 Total comprehensive income for the period Profit after taxation for the half year ended 2,677,350 2,677,350 Transactions with owners recognised directly in equity Final cash dividend for the year 2014 (1,253,422) (1,253,422) Transfer to statutory reserve 535,470 (535,470) Balance as at 10,027,379 4,934,018 2,823,440 66,766 6,847,045 24,698,648 Total comprehensive income for the period Profit after taxation for the half year ended December 31, 2,345,159 2,345,159 Remeasurement loss on defined benefit plan net of tax (26,339) (26,339) Transactions with owners recognised directly in equity Interim cash dividend for the year (1,754,791) (1,754,791) Gain on bargain purchase (note 4) 294, ,107 Transfer to statutory reserve 469,032 (469,032) Balance as at December 31, 10,027,379 5,403,050 3,117,547 66,766 6,942,042 25,556,784 Total comprehensive income for the period Profit after taxation for the half year ended 2,685,628 2,685,628 Transactions with owners recognised directly in equity Final cash dividend for the year (1,253,422) (1,253,422) Transfer to statutory reserve 537,126 (537,126) Balance as at 10,027,379 5,940,176 3,117,547 66,766 7,837,122 26,988,990 * This represents reserve created under section 21(i)(a) of the Banking Companies Ordinance, The annexed notes 1 to 27 form an integral part of this unconsolidated condensed interim financial information. Riyadh S. A. A. Edrees Chairman Irfan Siddiqui President & Chief Executive Faisal A. A. A. AlNassar Muhammad Zarrug Rajab 14

14 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, LEGAL STATUS AND NATURE OF BUSINESS Meezan Bank Limited (the Bank) was incorporated in Pakistan on January 27, 1997, as a public limited company under the Companies Ordinance, 1984, and its shares are quoted on the Karachi Stock Exchange (now "Pakistan Stock Exchange"). The Bank was registered as an Investment Finance Company on August 8, 1997, and carried on the business of investment banking as permitted under SRO 585(I)/87 dated July 13, 1987, in accordance and in conformity with the principles of Islamic Shariah. The Certificate of Commencement of Business' was issued to the Bank on September 29, The Bank was granted a Scheduled Islamic Commercial Bank license on January 31, 2002, and formally commenced operations as a Scheduled Islamic Commercial Bank with effect from March 20, 2002, on receiving notification in this regard from the State Bank of Pakistan (SBP) under section 37 of the State Bank of Pakistan Act, The Bank is engaged in corporate, commercial, consumer, investment and retail banking activities. The Bank was operating through five hundred and fifty one branches as at (December 31, : five hundred and fifty one branches). Its registered office is at Meezan House, C25, Estate Avenue, SITE, Karachi, Pakistan. Based on the financial statements of the Bank for the year ended December 31,, the JCRVIS Credit Rating Company Limited has reaffirmed the Bank's longterm rating as 'AA' and the shortterm rating as 'A1+' with stable outlook. BASIS OF PRESENTATION The Bank provides Islamic financing and related assets mainly through Murabaha, Istisna, Tijarah, Ijarah, Musharakah, Diminishing Musharakah, Running Musharakah, Bai Muajjal, Musawammah and Export Refinance under Islamic Export Refinance Scheme and Service Ijarah. The purchases and sales arising under these arrangements are not reflected in this unconsolidated condensed interim financial information as such but are restricted to the amount of facility actually utilised and the appropriate portion of profit thereon. The income on such Islamic financing is recognised in accordance with the principles of the Islamic Shariah. However, income, if any, received which does not comply with the principles of the Islamic Shariah is recognised as charity payable, if so directed by the Shariah Advisor of the Bank. 3 STATEMENT OF COMPLIANCE 3.1 This unconsolidated condensed interim financial information has been prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board and Islamic Financial Accounting Standards (IFASs) issued by the Institute of Chartered Accountants of Pakistan, as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, and the directives issued by the SECP and the SBP. Wherever the requirements of provisions and directives issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, the IFAS notified under the Companies Ordinances, 1984 and the directives issued by the SECP and the SBP differ from the requirements of IFRS, the provisions of and the directives issued under the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, IFAS notified under the Companies Ordinance, 1984 and the directives issued by the SECP and the SBP shall prevail. 15

15 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, The disclosures made in this unconsolidated condensed interim financial information have been limited based on the format prescribed by the SBP through BSD Circular Letter No. 2 dated May 12, 2004 and the requirements of International Accounting Standard 34, "Interim Financial Reporting". They do not include all of the information required for a full set of annual financial statements and this unconsolidated condensed interim financial information should be read in conjunction with the annual financial statements of the Bank for the year ended December 31,. Standards, interpretations and amendments to published approved accounting standards that are effective in the current period There are certain new and amended standards and interpretations that are mandatory for the Bank's accounting periods beginning on or after January 1, but are considered not to be relevant or do not have any significant effect on the Bank's operations and therefore not detailed in this unconsolidated condensed interim financial information. 4 ACQUISITION OF HSBC BANK OMAN S.A.O.G PAKISTAN BRANCH OPERATIONS Last year, the Bank completed the acquisition of HSBC Oman S.A.O.G Pakistan branch (HBON) effective from the close of business on November 06,. This transaction has been accounted for as "Business Combination" under IFRS 3. International Financial Reporting Standard 3, (IFRS 3) "Business Combinations", requires that all identified assets and liabilities acquired in a business combination should be carried at fair values in the acquirer's balance sheet and any intangible assets acquired in the business combination are required to be separately recognised and carried at fair values. IFRS 3 allows the acquirer a maximum period of one year from the date of acquisition to finalise the accounting for business combination. The SBP has given exemption to the Bank from recognition of Intangible assets on the business combination. The management is currently carrying out the fair valuation exercise for recorded assets and liabilities and intends to complete within the period specified under IFRS 3. The Bank incorporated the balances relating to HBON at their carrying values as appearing in the audited financial statements of HBON on the close of business on November 06,. The excess of net assets acquired over purchase consideration has been recognised as a nondistributable capital reserve in the statement of changes in equity as per the directives of the State Bank of Pakistan. The reserve may become available for distribution as stock dividend only with prior approval of the SBP. Further, the Bank may, before distribution of the reserve as stock dividend, adjust any subsequent provisions / deficit assessed by the Bank or recommended by the Banking Inspection Department of the SBP in subsequent inspections in the acquired portfolio of the HBON against this reserve. Further, the above gain does not incorporate the adjustments which will be recorded after completion of the fair value exercise of recorded assets and liabilities. 5 BASIS OF MEASUREMENT 5.1 This unconsolidated condensed interim financial information has been prepared under the historical cost convention except that certain investments, foreign currency balances and commitments in respect of certain foreign exchange contracts have been marked to market and carried at fair value in accordance with the requirements of the SBP. In addition, obligation in respect of staff retirement benefit is carried at present value. 16

16 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 5.2 Functional and Presentation Currency This unconsolidated condensed interim financial information has been presented in Pakistani Rupee, which is the Bank's functional and presentation currency. 5.3 Rounding off Figures have been rounded off to the nearest thousand rupees unless otherwise stated. 6 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The basis and the methods used for critical accounting estimates and judgments adopted in this unconsolidated condensed interim financial information are the same as those applied in the preparation of the annual financial statements of the Bank for the year ended December 31,. 7 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies and the methods of computation adopted in the preparation of this unconsolidated condensed interim financial information are the same as those applied in the preparation of the annual financial statements of the Bank for the year ended December 31, except for the following: Non Banking assets acquired in the satisfaction of claims Effective January 1,, the Bank has changed its accounting policy for recording of non banking assets acquired in satisfaction of claims to comply with the requirements of the 'Regulations for Debt Property Swap' (the regulations) issued by SBP vide its BPRD Circular No. 1 of, dated January 1,. In line with the guidance provided in the Regulations, the non banking assets acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation. These assets are revalued by professionally qualified valuers with sufficient regularity to ensure their net carrying value does not differ materially from their fair value. Surplus arising on revaluation of property is required to be credited to the 'surplus on revaluation of assets' account which is required to be shown in the Statement of Financial Position below equity and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer cost and direct cost of acquiring title to property is charged to the profit and loss account. Previously, Nonbanking assets acquired in satisfaction of claims were carried at cost less impairment, if any. The above change in accounting policy does not have any impact on this unconsolidated condensed interim financial information. 8 CASH AND BALANCES WITH TREASURY BANKS In hand Note December 31, (Audited) local currency foreign currencies 13,253,085 1,859,679 10,796,938 1,706,594 With the State Bank of Pakistan in local currency current accounts foreign currency current accounts ,968,044 3,052,178 15,508,004 3,038,669 With National Bank of Pakistan in local currency current accounts 9,155,240 12,635,431 44,288,226 43,685, These include local and foreign currency amounts required to be maintained by the Bank with the SBP as stipulated by the SBP. These accounts are nonremunerative in nature. 17

17 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, BALANCES WITH OTHER BANKS In Pakistan in current accounts on deposit accounts / term deposit receipts Outside Pakistan in current accounts in deposit accounts The return on these balances is around 5.98% (December 31, : 6.5%) per annum. The return on these balances is around 0.10% (December 31, : 0.09%) per annum. DUE FROM FINANCIAL INSTITUTIONS Bai Muajjal: With other banks With State Bank of Pakistan With other bankssecured Musharakah Unsecured Musharakah Secured Commodity Murabaha Provision against nonperforming amounts due from financial institutions 1,899,758 13,000, , ,124 15,698,346 27,734,087 31,413,175 3,367,085 62,514,347 10,000,000 26,066 72,540,413 (41,566) 72,498,847 December 31, (Audited) 1,978,004 4,000,000 2,089,623 3,107,433 11,175,060 21,885,385 78,334, ,219, ,000 26, ,121,042 (41,566) 101,079,476 These carry return ranging from 5.70% to 6.07% per annum (December 31, : 5.75% to 8.34%) and are due to mature on various dates from July to March Note INVESTMENTS NET Investments by types Available for sale securities Held to maturity securities In related parties Subsidiary (unlisted) Associates (listed) Associate (unlisted) Investments at cost / carrying value Less: Provision for diminution in the value of investments Investments net of provision Surplus on revaluation of available for sale securities Total investments Note 11.3 Held by Given as Total the bank collateral 164,238,995 * 28,000,000 63,050 1,835, ,137,391 (368,809) 193,768,582 1,459, ,227, ,238,995 28,000,000 63,050 1,835, ,137,391 (368,809) 193,768,582 1,459, ,227,829 December 31, (Audited) Held by Given as Total the bank collateral 143,607,874 63,050 1,835,346 28, ,534,395 (445,385) 145,089,010 1,215, ,304,897 ** 143,607,874 63,050 1,835,346 28, ,534,395 (445,385) 145,089,010 1,215, ,304,897 * These include investment in sukuks of Pakistan International Airline (PIA) amounting to Rs 1.5 billion in respect of which no provision has been recognised as the SBP has allowed exemption from Regulation (R8) of the Prudential Regulations for Corporate / Commercial Banking upto December 31,. ** The entity has no longer remained an associated entity during the current period. 18

18 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 11.2 Investments by segments Federal Government Securities Note December 31, (Audited) GOP Ijarah Sukuk Bai Muajjal with Government of Pakistan (through State Bank of Pakistan) 96,981,701 69,394,946 48,183,702 69,394,946 Sukuk certificates / bonds Sukuk Certificates Global Sukuk Bonds 13,798,640 7,647,301 14,515,543 7,492,187 Fully paid up ordinary shares Listed companies 3,773,056 3,432,671 Unlisted companies subsidiary associates others 63, ,351 63,050 28,125 * 513,825 Units of open end funds associates others Total investment at cost / carrying value Less: Provision for diminution in the value of investments Investments net of provision Surplus on revaluation of available for sale securities Total investments ,835,346 50, ,137,391 (368,809) 193,768,582 1,459, ,227,829 1,835,346 75, ,534,395 (445,385) 145,089,010 1,215, ,304, Provision for diminution in value of investments and impairment Associates Others Total December 31, (Audited) Associates Others Total Opening balance 445, ,385 13, , ,292 Charge / (reversal) for the period / year on associates (unlisted) 11,328 11,328 On available for sale investments charge for the period / year reversal for the period / year Closing balance 28,054 (104,630) (76,576) 368,809 28,054 (104,630) (76,576) 368,809 11,328 24,514 * 163,280 (53,515) 109, , ,280 (53,515) 121, ,385 * The entity has no longer remained an associated entity during the current period. 19

19 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 12 ISLAMIC FINANCING AND RELATED ASSETS NET In Pakistan Murabaha financings Advances against Murabaha Murabaha Inventory Financing under Islamic Export Refinance Murabaha Advances against future Islamic Export Refinance Murabaha Net investment in Ijarah Net book value of assets / investment in Ijarah under IFAS2 Note Advances against future Ijarah Istisna financings Istisna advance Istisna Inventory Financing under Islamic Export Refinance Istisna Financing under Islamic Export Refinance Istisna Inventory Advances against Islamic Export Refinance Istisna Financing under Islamic Export Refinance Musawammah 12.6 Advances against Islamic Export Refinance Musawammah Running Musharakah financings Financing under Islamic Export Refinance Running Musharakah Diminishing Musharakah financings Housing Diminishing Musharakah financings Others Advances against Diminishing Musharakah Financing under Islamic Export Refinance Tijarah Financing under Islamic Export Refinance Tijarah Inventory Tijarah financings Tijarah inventory Bai Muajjal financings 12.4 Advances against future Service Ijarah Musawammah financings 12.5 Advances against Musawammah Wakalah Tul Istithmar Musharakah Financings Musawammah inventory Labbaik (Qard for Hajj and Umrah) Financings against bills Salam Financings against bills Murabaha Advance Salam Financings Advances Staff financings Other financings Gross Islamic financing and related assets Less: Provision against nonperforming Islamic financings and related assets 12.8 Islamic financing and related assets net of provisions 6,660,339 3,022,534 5,461, ,135 1, ,932 17,073,530 17,227,462 2,834, ,584 15,872,300 1,542, , ,648 2,987, ,264 31,205,134 4,373,065 8,371,965 76,147,299 10,723, , , ,517 4,839, , ,103 4,153,325 2,244,139 12,750, ,600 3,711,922 4,125 9,430,623 1,738 2,477,480 2,401, ,246,215 (7,983,920) 225,262,295 December 31, (Audited) 12,197,556 1,848,265 5,762, , , ,011 13,610,087 13,848,098 1,773, ,841 19,316,205 1,358, , ,114 6,348, ,393 60,000 42,315,235 6,030,000 6,918,394 51,538,252 6,632, , , ,911 4,237, , ,456 7,827,479 2,396,596 1,666,407 4,725 7,343,900 1,738 5,000,000 2,183,244 3,193, ,775,663 (8,206,840) 207,568, Murabaha receivable gross Less: Deferred murabaha income Profit receivable shown in other assets Murabaha Financings Financing under Islamic Export Refinance Murabaha gross Less: Deferred income Profit receivable shown in other assets Financing under Islamic Export Refinance Murabaha 6,949,546 (91,638) (197,569) 6,660, ,084 (882) (9,067) 126,135 12,709,277 (141,759) (369,962) 12,197, ,268 (5,693) (12,361) 595,214 20

20 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 12.3 Net book value of assets / investments in Ijarah under IFAS2 is net of depreciation of Rs 9,321 million (Dec 31, : Rs 8,152 million). December 31, (Audited) 12.4 Bai Muajjal financings gross Less: Deferred income Profit receivable shown in other assets Bai Muajjal financings 143,312 (14,678) (18,221) 110, ,512 (20,945) (13,936) 863, Musawammah financings gross Less: Deferred income Profit receivable shown in other assets Musawammah financings 4,301,792 (88,777) (59,690) 4,153,325 8,100,048 (180,515) (92,054) 7,827, Financing under Islamic Export Refinance Musawammah Less: Deferred income Profit receivable shown in other assets Financing under Islamic Export Refinance Musawammah 277,167 (575) (3,328) 273, ,794 (5,432) (11,969) 434, Islamic financings and related assets include Rs 6,791 million (Dec 31, : Rs 7,064 million) which have been placed under nonperforming status as detailed below: Category of classification Other Assets Especially Mentioned Substandard Doubtful Loss Domestic Overseas Total Provision required 8, ,652 57,058 6,516,558 6,790,702 8, ,652 57,058 6,516,558 6,790, ,585 22,665 6,482,042 6,555,002 Provision held ,585 22,665 6,482,042 6,555,002 Category of classification Other Assets Especially Mentioned Substandard Doubtful Loss Domestic Overseas Total Provision required 1, ,927 62,832 6,772,079 7,064,382 December 31, (Audited) 1, ,927 62,832 6,772,079 7,064,382 54,401 25,755 6,759,912 6,840,068 Provision held 54,401 25,755 6,759,912 6,840,068 21

21 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 12.8 Particulars of provision against nonperforming Islamic Financing and related assets: December 31, (Audited) Specific General Total Specific General Total Opening balance 6,840,068 1,366,772 8,206,840 6,285,090 1,288,516 7,573,606 Charge for the period / year Less: Reversals Transferred during the period / year* Amount written off Closing balance 49,916 (334,982) (285,066) 6,555,002 62,146 62,146 1,428, ,062 (334,982) (222,920) 7,983, ,014 (256,362) 347, ,661 (335) 6,840,068 78,256 78,256 1,366, ,270 (256,362) 425, ,661 (335) 8,206,840 * This represents balances transferred from HSBC Bank Oman S.A.O.G. Pakistan branch on acquisition of HSBC Bank Oman S.A.O.G Pakistan branch operations The Bank maintains general reserve (provision) in accordance with the applicable requirements of the Prudential Regulations for Consumer financing and Prudential Regulations for Small and Medium Enterprise financing issued by the SBP. In addition, the Bank has also maintained a general provision of Rs 1,125 million (December 31, : Rs 1,125 million) against Islamic financing and related assets made on prudent basis, in view of the prevailing economic conditions. This general provision is in addition to the requirements of the Prudential Regulations In accordance with BSD Circular No. 2 dated January 27, 2009 issued by the State Bank of Pakistan, the Bank has availed the benefit of Forced Sales Value (FSV) of collaterals against the nonperforming financings. The accumulated benefit availed as at amounts to Rs 8 million (December 31, : Rs 25.3 million). The additional profit arising from availing the FSV benefit net of tax as at amounting to Rs 5.2 million (December 31, : Rs million) is not available for distribution of cash and stock dividend to share holders. 22

22 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 13 OPERATING FIXED ASSETS December 31, (Audited) Capital workinprogress Property and equipment Intangible assets 500,580 7,893, ,699 8,846, ,560 7,177, ,268 8,056, Additions to fixed assets 1,547,759 1,451,078 Disposals of fixed assets at cost 99, ,842 December 31, (Audited) 14 DEPOSITS AND OTHER ACCOUNTS 14.1 Customers Fixed deposits Savings deposits Current accounts nonremunerative Margin Financial institutions Remunerative deposits Nonremunerative deposits Particulars of deposits 126,309, ,593, ,041,081 2,030, ,974,082 4,192, ,599 5,009, ,983, ,769, ,622, ,226,202 1,055, ,674,024 5,672, ,311 6,146, ,820,959 In local currency foreign currencies 473,957,064 27,026, ,983, ,247,970 26,572, ,820,959 23

23 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, SHARE CAPITAL Authorised capital December 31, December 31, (Audited) Number of Shares Ordinary shares of 1,500,000,000 1,500,000,000 Rs. 10 each 15,000,000 15,000, Issued, subscribed and paidup capital December 31, December 31, (Audited) Number of Shares Ordinary Shares 456,353, ,353,635 Fully paid in cash 546,384, ,384,260 Issued as bonus shares 1,002,737,895 1,002,737,895 4,563,536 5,463,843 10,027,379 4,563,536 5,463,843 10,027, CONTINGENCIES AND COMMITMENTS Transaction related contingent liabilities Guarantee favoring Government Banks Others Trade related contingent liabilities Import letters of credit Acceptances Commitments in respect of forward exchange contracts Purchases Sales 11,218, ,769 2,986,617 15,056,703 32,414,280 5,283,070 37,697,350 57,993,945 50,993,408 9,936, ,332 2,436,550 12,600,343 29,373,250 4,049,357 33,422,607 68,362,309 74,532, Commitments for the acquisition of operating fixed assets 135, ,082 24

24 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, December 31, (Audited) 16.5 Commitments in respect of Islamic financing and related assets 125,144, ,606, Other commitments Bills for collection (inland) Bills for collection (foreign) 167,739 41,237,476 41,405, ,175 30,956,046 31,107, PROFIT / RETURN EARNED ON ISLAMIC FINANCINGS AND RELATED ASSETS, INVESTMENTS AND PLACEMENTS On financings to: Customers 7,035,039 7,591,957 On investments in Available for sale securities Held for trading securities Held to maturity securities 4,255,145 5, ,093 3,950, On deposits with financial institutions 3,254,996 14,953,820 5,753,070 17,296, RETURN ON DEPOSITS AND OTHER DUES EXPENSED Deposits and other accounts Other short term Musharakahs / Mudarabas 5,941, ,327 6,151,845 7,506, ,029 7,781, TAXATION The Finance Act has extended the applicability of one time super tax imposed in the tax year for the tax year also. The rate of tax is 4% of the taxable income for the tax year. The Bank has recognised an amount Rs million as the prior year tax charge pertaining to super tax in the current period. 25

25 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 20 BASIC AND DILUTED EARNINGS PER SHARE Note Profit after taxation for the period 2,685,628 2,677,350 Number Weighted average number of ordinary shares 1,002,737,895 1,002,737,895 Rupees Basic earnings per share There were no convertible dilutive potential ordinary shares outstanding on and. Note 21 CASH AND CASH EQUIVALENTS Cash and balances with treasury banks Balances with other banks ,288,226 15,698,346 59,986,572 38,101,410 9,115,120 47,216,530 26

26 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 22 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS The table below analyses financial and nonfinancial assets carried at fair value, by valuation method. The different levels have been defined as follows: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the assets or liabilities that are not based on observable market data (i.e. unobservable inputs e.g. estimated future cash flows) (Level 3). RECURRING FAIR VALUE MEASUREMENTS INVESTMENTS NET Financial Assets Available for sale securities Ordinary shares listed Units of open end fund GOP Sukuks WAPDA Sukuks Global Sukuk Bonds Level 1 4,618,298 49,588 7,710,354 Level 2 Level 3 Level 4 69,348, ,663 4,618,298 49,588 69,348, ,663 7,710,354 Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts 58,568,129 51,461,646 58,568,129 51,461,646 RECURRING FAIR VALUE MEASUREMENTS INVESTMENTS NET Financial Assets Available for sale securities Ordinary shares listed Units of open end fund GOP Sukuks WAPDA Sukuks Global Sukuk Bonds 4,112,074 75,528 7,365,343 December 31, (Audited) Level 1 Level 2 Level 3 Level 4 48,653, ,550 4,112,074 75,528 48,653, ,550 7,365,343 Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts 68,957,448 75,131,750 68,957,448 75,131,750 The Bank's policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the period. Valuation techniques used in determination of fair values within level 2 Item GOP Sukuks WAPDA Sukuks Forward foreign exchange contracts Valuation approach and input used The fair value of GoP Ijarah Sukuks and WAPDA sukuks quoted are derived using PKISRV rates. The PKISRV rates are announced by FMA (Financial Market Association) through Reuters. The rates announced are simple average of quotes received from 6 different predefined / approved dealers / brokers. The valuation has been determined by interpolating the mid rates announced by State Bank of Pakistan. 27

27 NOTES TO AND FORMING PART OF THE UNCONSOLIDATED CONDENSED INTERIM F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D ) FOR THE HALF YEAR ENDED JUNE 30, 23 SEGMENT DETAILS The segment analysis with respect to business activity is as follows: Corporate Finance Trading & Sales Retail Banking Commercial Banking Agency Services Total Total income Total expenses Net income Segment assets Segment non performing assets Segment Provision held* Segment liabilities Segment return on assets (ROA) (%) Segment cost of funds (%) 630,017 (505,035) 124,982 13,799, , , , % 2.57% 9,003,162 (7,801,095) 1,202, ,367, , ,206 1,795, % 2.57% 3,147,244 (2,570,115) 577,129 66,446,725 1,818,248 1,910, ,128, % 2.57% 4,971,750 (4,196,021) 775, ,816,609 5,275,597 6,248,096 22,145, % 2.57% 8,801 (3,080) 5,721 17,760,974 (15,075,346) 2,685, ,430,669 8,153,926 8,527, ,493,169 *Includes General Provision Total income Total expenses Net income Segment assets Segment non performing assets Segment Provision held* Segment liabilities Segment return on assets (ROA) (%) Segment cost of funds (%) 536,884 (459,254) 77,630 12,031, , , , % 3.88% 10,519,940 (9,197,657) 1,322, ,477, , ,399 1,368, % 3.88% 1,918,680 (1,585,088) 333,592 27,279, , , ,942, % 3.88% 6,500,813 (5,560,307) 940, ,637,241 5,855,968 6,963,045 10,455, % 3.88% 5,137 (1,798) 3,339 19,481,454 (16,804,104) 2,677, ,424,973 7,774,778 8,477, ,981,153 *Includes General Provision 24 RELATED PARTY TRANSACTIONS 24.1 Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions and include major shareholders, subsidiary company, associated companies with or without common directors, retirement benefit funds, directors, and key management personnel and their close family members Banking transactions with related parties are entered in the normal course of business. Subsidiary company: Al Meezan Investment Management Limited Key management personnel: President and Chief Executive Officer Deputy Chief Executive Officer 28